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IHT

Inheritance Tax Basics for Estate Planners

Essential IHT knowledge for estate planners - thresholds, exemptions, reliefs, and when to refer clients to specialists.

By Alex Stansbury, Founder
•
14 min read
•Updated April 2026

TL;DR

UK Inheritance Tax (IHT) is 40% on estates above the £325,000 nil-rate band, plus an additional £175,000 residence nil-rate band when passing a home to direct descendants. A married couple can pass up to £1m tax-free. Frozen until April 2030.

IHT Basics Every Estate Planner Needs

Inheritance Tax (IHT) is charged on estates above certain thresholds. While you don't need to be a tax specialist, every estate planner needs basic IHT knowledge. For the complete career overview, see our guide on How to Become an Estate Planner UK.

Current thresholds (2025/26):

  • •Nil rate band: £325,000
  • •Residence nil rate band: £175,000 (when passing home to direct descendants)
  • •Combined: up to £500,000 per person
  • •Married couples/civil partners: can transfer unused allowance

Key rates:

  • •IHT rate: 40% on value above threshold
  • •Reduced rate: 36% if leaving 10%+ to charity
  • •Potentially Exempt Transfers: 7-year rule applies

What's included in an estate:

  • •Property
  • •Savings and investments
  • •Personal possessions
  • •Life insurance (not in trust)
  • •Gifts made within 7 years
  • •Trust interests

What you need to know:

  • •Basic calculation of potential IHT liability
  • •Main exemptions and reliefs
  • •When IHT planning might help
  • •When to refer to specialists

Key Exemptions and Reliefs

Several exemptions and reliefs can reduce or eliminate IHT:

Spouse/civil partner exemption:

  • •Transfers between spouses are exempt
  • •No limit on amount
  • •Transferable nil rate band on death

Charity exemption:

  • •Gifts to UK charities are exempt
  • •Can reduce rate to 36% if 10%+ left to charity

Annual exemptions:

  • •£3,000 annual exemption (unused can be carried forward one year)
  • •Small gifts exemption: £250 per person per year
  • •Wedding/civil partnership gifts: £5,000 from parents, £2,500 from grandparents, £1,000 from others

Business Relief:

  • •100% relief on some business assets
  • •50% on others
  • •Complex rules - refer to specialists

Agricultural Relief:

  • •100% or 50% on agricultural property
  • •Complex qualifying conditions
  • •Refer to specialists

Normal expenditure from income:

  • •Regular gifts from surplus income
  • •Must be habitual, from income, leave enough to maintain lifestyle
  • •Good planning tool but complex to demonstrate

What Estate Planners Should Do

Your role with IHT is awareness and appropriate referral:

What you should do:

  • •Understand basic IHT position of clients
  • •Explain exemptions and allowances
  • •Incorporate simple IHT-efficient provisions in wills
  • •Identify when specialist advice is needed
  • •Document that you're not giving tax advice

Simple IHT planning in wills:

  • •Using both nil rate bands effectively
  • •Charitable legacies to reduce rate
  • •Discretionary trusts for flexibility
  • •Life interest trusts in some situations

What requires specialist referral:

  • •Complex business ownership
  • •Agricultural property
  • •International assets
  • •Significant wealth (estates over £2m)
  • •Lifetime giving strategies
  • •Trust planning for IHT

How to discuss IHT with clients:

  • •"Based on what you've told me, your estate may/may not be above the IHT threshold"
  • •"There are some provisions we can include in your will that may help"
  • •"For detailed tax planning, I'd recommend speaking to a specialist"
  • •"I can refer you to someone if you'd like"

Documentation:

Always note in your file:

  • •Whether IHT was discussed
  • •What general information was provided
  • •That detailed tax advice was not given
  • •Whether referral was offered

Common Client Questions

Clients often have IHT questions. Here's how to handle them:

"Will my estate pay inheritance tax?"

  • •Help them understand the thresholds
  • •Consider property value, savings, etc.
  • •Note that spouse transfers are exempt
  • •Explain the residence nil rate band if applicable

"How can I avoid inheritance tax?"

  • •Explain that legitimate planning exists
  • •Mention the 7-year rule for gifts
  • •Note the spouse exemption
  • •Recommend specialist advice for detailed planning

"Should I give everything away now?"

  • •Explain the 7-year rule
  • •Warn about deprivation of assets for care fees
  • •Suggest they consider their own needs first
  • •Recommend professional advice before major gifts

"My house is worth £X - what will the tax be?"

  • •Explain it's based on total estate
  • •Note the residence nil rate band
  • •Factor in debts and other assets
  • •Give rough indication, not detailed calculation

Key message: You can provide general information and education. For detailed tax planning or calculations, refer to accountants or specialist IHT planners.

Key Takeaways

  • Basic IHT knowledge is essential for all estate planners
  • Current thresholds: £325,000 + £175,000 residence nil rate band
  • Spouse/civil partner transfers are completely exempt
  • Gifts made more than 7 years before death are outside the estate
  • Refer complex IHT planning to specialists
  • Always document that you are not providing detailed tax advice

Frequently Asked Questions

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